The Secret Protectionism Buried Inside NAFTA

Now NPR's Zoe Chase, from our Planet Money Team, reminds us about one industry that played a big role in NAFTA's passage: men's underwear.

ZOE CHACE, BYLINE: Now you're used to the labels: made in Mexico, made in China, made in Bangladesh. But back in the '80s, when they were first talking about NAFTA, about half of American clothing was made in America, by people like this.

BERTHA MARR: Graduated from the eighth grade, then went straight on in to working at Fruit of the Loom.

CHACE: It was a good job, sewing the fly of men's underwear. Bertha said she made about $100 a day. And the big fear was, when it came to NAFTA, that good manufacturing jobs like Bertha's would leave the United States and go to Mexico. Presidential candidate Ross Perot characterized the fear most memorably in a 1992 debate.

(SOUNDBITE OF DEBATE)

ROSS PEROT: Pretty simple: If you're paying 12, $13, $14 an hour for factory workers and you can move your factory south of the border, pay $1 an hour for labor, there will be a job-sucking sound going south.

CHACE: And that's what happened to Bertha's job. Here's Fruit of the Loom's current president, Rick Medlin.

RICK MEDLIN: To be competitive, we had to move those high-labor-content jobs offshore.

CHACE: Specifically to Mexico and Central America.

MEDLIN: NAFTA was the start, and CAFTA came along later.

CHACE: The economic idea is this: Casualties like Bertha are for the greater good. Some people lose their jobs, but we sell more stuff to Mexico and Canada, which is good for business, and our clothes are cheaper overall. But in order to get this deal signed into law, there was a specific tradeoff that was made, a tradeoff that's sort of the opposite of what free trade is: a restriction that had everything to do with the men's boxer brief.

The restriction didn't save Bertha. It saved the people who did the step just before Bertha.

DAN NATION: We're the largest textile company in this hemisphere, we believe.

CHACE: This is Dan Nation, CEO at Parkdale, headquartered in North Carolina. What Parkdale does, is it takes cotton and spins it into yarn.

NATION: I think we may be the largest yarn spinner in the world. We're certainly one of the largest. You never quite know in China.

CHACE: Now, yarn looks to you and me like thread. The little lines you see in your cotton clothes, that's yarn. Yarn is what your underwear is made of, and yarn is at the center of this restriction that made NAFTA possible. The restriction is this: You can make men's boxer briefs in Mexico, send them here duty-free, but you can't use yarn made in China.

In order to get the duty-free deal, you have to use yarn produced in the NAFTA region. This is called the yarn-forward rule of origin. It means everything in the underwear-making process. Yarn forward has to be done in the region. Again, Rick Medlin, the president of Fruit of the Loom.

MEDLIN: The real caveat that has allowed us to be competitive with Asia is the yarn forward rule.

CHACE: Jobs like Bertha's, he says, were leaving the United States. Because of this rule, they went to Mexico and Central America rather than China. And also because of this rule, places like Parkdale had built-in customers. The U.S. textile negotiator on NAFTA, Ron Sorini, he says that without this rule, you'd have no NAFTA, because senators in the textile-making South would not have let it through Congress.

RON SORINI: If we had not committed to negotiate a yarn-forward rule of origin, we wouldn't have gotten NAFTA, and we wouldn't have had the World Trade Organization.

CHACE: Yarn forward became the price of admission to get U.S. free trade deals done. The irony here is that despite the whole purpose of the free trade deal to have importers bring in clothes for free as long as they do this one thing, it turns out it's a lot of paperwork. So lots of importers say, I'm just going to bring it in from China and pay the duty. Despite NAFTA, China is the number one supplier of clothes to the United States. Zoe Chace, NPR News. Transcript provided by NPR, Copyright NPR.